• Home
• Oil & Gas
• News Article

Bahrain: Sustaining Energy

Despite one of the most successful diversification strategies in the region, Bahrain's energy sector is by no means overlooked in the country's drive to attract investments; rightly so, as the sector continues to be pivotal to the Kingdom's economy.

According to a recent report by Global Investment House, a Kuwait-based investment company, the contribution of oil to the country's total exports increased from 66% in 2001 to 82.4% in the third quarter of 2008. Contribution to GDP for the year 2007 was 24.6%, while three-quarters of government revenue stemmed from the sector.

Despite signs of resource depletion, Bahrain remains confident that, at least for the medium term, it can keep production levels stable. In the recently approved government budget for 2009-10, the petroleum sector accounts for 76% of total income in both fiscal years.

Aware of the need to increase energy supplies, the Kingdom aims to double output and increase refining capacity over the next 15 years.

The National Oil and Gas Authority (NOGA) has progressively opened up the sector for private companies tasked with optimising production levels of existing resources as well as exploring new ones.

In a combined press release in March this year, US-based Occidental Petroleum Corporation (Oxy) and Abu Dhabi's Mubadala Development Company declared to have entered into an interim agreement with NOGA for the further development of the Bahrain Field. According to Oxy , the agreement's term is likely to be set for a period of 20 years in which production of oil is estimated to increase from 35,000 barrels per day (bpd) today to over 100,000 bpd. Gas production is also expected to rise, although no estimations have yet been disclosed.

In a bid to renew offshore exploration, in 2007 NOGA invited international companies to bid for one of four offshore oil fields. As a result, Oxy and Thailand's PTT Exploration and Production were awarded the exploration and production-sharing agreements, and will start drilling in early 2010.

Besides efforts to increase domestic supplies, initiatives are also being implemented to establish or upgrade supplies from surrounding countries.

One such example is Bahrain's eastern neighbour. In January, Saudi Aramco formally announced its plans to replace and expand the existing 114-km oil pipeline that connects Bahrain to the Abu Saafa oil field, which the country shares with Saudi Arabia. The projected increase in capacity will raise supplies to Bahrain to a level of 350,000 bpd, compared to the current 235,000 bpd. The new pipeline is due for commissioning in 2011.

Whereas an increase in the level of oil would be a welcome addition to the government's treasury, an increase in gas supplies is vital to support the growth of the country's industrial sector as well as its population.

Current levels of gas are ample to satisfy the status quo; however, "gas requirements are more likely to go up than down", Abdul Hussain bin Ali Mirza, the minister of oil and gas affairs and chairman of NOGA , told OBG. "Users such as Aluminium Bahrain , the Gulf Petrochemical Industries Company and the Electricity and Water Authority will need more gas for their investment plans. The growing domestic population will also require an increasing amount of gas. Therefore we will remain committed to exploring gas at full capacity."

Similar to oil supplies, the focus for additional gas is on domestic resources.

Besides the anticipation of striking associated gas in oil explorations, an international tender for deep onshore gas exploration was launched in October 2008. Despite the current economic crisis and volatile price of oil, the response to the tender has been positive, with 19 international oil companies having expressed serious interest. Furthermore, NOGA expects more signs of interest over the coming months. The eventual set of companies will be invited to submit their bids by May 2009 after which the evaluation and selection stages take place.

In an effort to further secure gas supplies from abroad, the Kingdom signed a memorandum of understanding with Royal Dutch Shell in February of this year. The agreement includes importing liquid natural gas shipped in tankers from the company's projects in Qatar or Iraq. "The new agreement with Shell... opens a whole set of new opportunities," Mirza told OBG. "Bahrain could even look beyond its immediate neighbours for supplies, to North African producers such as Algeria."

Although the variety of options and the involvement of internationally renowned commercial enterprises bodes well for the Kingdom's chances of securing its energy needs, policymakers take into account that the country may have to face a future without domestic production facilities. As a result, parliamentary dialogue is increasingly arising on more effective use of resources.

Energy efficiency remains a primary challenge. The 2008 "Key Statistics Report", published by the International Energy Agency, shows that in 2006 Bahrain's per-capita electricity consumption was 12,627 kWh, compared to the Organisation for Economic Cooperation and Development average of 8381 kWh and 3163 kWh for the Middle Eastern region.

Abdul Majeed Ali Alawadhi, the chief executive of the Electricity and Water Authority (EWA) charged with designing the strategy for the country's utility sector, told OBG that, "Largely due to subsidised gas prices people have never been made aware of efficient energy usage. As the country increasingly experiences gas shortages, efficient use is a prerequisite for energy sustainability."

Although politically sensitive, there is a growing urgency among policymakers to review the subsidies on gas prices; a sentiment that is even more pressing today as the financial crisis and depressed oil price impact the government budget.

Meanwhile, EWA has begun targeting efficiency standards by the introduction of public awareness campaigns, as well as the enforcement of stricter control on the number of independent power and water plants. Furthermore, the government's new industrial growth strategy, with its focus on light industry, will also help relieve some of the strain on the energy sector.

The current abundance of initiatives underlines the country's commitment to secure energy supplies, as well as their importance in sustaining economic development. Although the expectation on foreign operators to discover new sources of oil and gas is high, more efficient energy usage is a necessity in prolonging the life span of the country's natural resources.

© Oxford Business Group 2009